Netflix shares dropped a total of 70% from its high of 300 in July. Although PE is now at around 30, it was a lot higher a few months ago. The strange thing is that save for the shocking increase in prices announced by Hastings in September, the overall stock price has been slowly declining since the summer. What is the cause for this? Was it the anticipation of Hastings' intentions to shift the business towards online streaming rather than physical products? Another announcement that has hurt share price is the expansion of Netflix into Europe with sincere warnings issued in a letter to shareholders that the profits made in the U.S are not going to be enough to cover the necessary R&D and infrastructure costs that will arise in Europe. Also, spending has gone up and will continue to go up as Netflix acquires more streaming rights for their instant play.
Despite all these negative signs, I believe that in a few months or even years, Netflix will return to be the Wall Street star it was a few months ago. Everything that has caused revenues to decline comes from efforts to expand the business and is directed in the correct direction, one that agrees with the overall trend of the industry. I believe that shareholders should pull through this down stretch in order to make substantial profits in the future.
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